Market Report: Lloyds hit by slashed price target

Lloyds Banking Group was among the biggest casualties on the FTSE 100 after JPMorgan Cazenove slashed its price target.

The lowered price target - down from 98p to 90p - was driven by the expected delay in interest rate increases, the impact of floods on the insurance business and lower loan growth assumptions.

Raul Sinha, of JPMorgan Cazenove, believes the group’s net interest margin (NIM), which is the difference between the interest it gets from borrowers and what it pays savers, could come under pressure.

“NIM could decline further in 2016 in the absence of interest rate hikes,” Mr Sinha cautioned.

Despite revenue pressure from “a lower for longer” UK rate environment, JPMorgan believes that Lloyds is “best positioned” within the sector to complete its balance sheet transformation and “become a dividend growth story”.

However, even though Lloyds remains JPMorgan’s “top UK bank pick”, the move to reduce its price target spooked investors. Shares fell 3.7p, or 5.6pc, to 63.1p.

Separately, Berenberg issued a note on European banks entitled “Fee Falling”, which did little to help the sector. The broker said European banks were trading at all-time lows, having underperformed by around 11pc in the past three months.

The bearish broker notes also dragged Lloyds’ peers into the red. Barclays lost 4.7pc to 181.9p, while Royal Bank of Scotland slipped 4.1pc to 251.3p and Standard Chartered shed 2.1pc to 478.2p.

On the broader market, Britain’s benchmark index faltered after another oil-inspired sell-off. Despite reaching an intraday high in early trade of $32.81 a-barrel, the price of a barrel of Brent crude soon tumbled by as much as 4.8pc to $30.64 due to renewed oversupply concerns, after Iraq announced record-high oil production. In its wake, the FTSE 100 closed at 5,877 - down 23.01 points, or 0.39pc.

Joshua Mahony, of IG, said: “The correlation between crude oil and European stock markets is at multi-year highs right now, and thus the threat of another leg lower in oil serves as a worrying backdrop for bullish indices traders.”

The persistent volatility of crude triggered a fall in oil stocks. BP slipped 0.7pc to 350.2p. On the mid-cap index, Tullow Oil and Petrofac fell 5.1pc and 2.7pc, respectively.

Despite falling in early trade, BG Group climbed 0.2pc to close at 981.7p, and Royal Dutch Shell B shares rose 1pc to £14.02.

Mining stocks had a mixed session. Copper followed oil lower, although losses were limited thanks to a positive trading session in China, the world’s top metals consumer. Three-month copper contracts on the London Metal Exchange lost as much as 0.6pc in intraday trade to $4,417 a tonne. Rio Tinto was 2.7pc lower at £16.09 as a result, while Antofagasta slipped 2.4pc to 363.2p and BHP Billiton was nursing losses of 1.4pc by close at 639.8p.

Meanwhile, zinc climbed 0.6pc to $1,515 a tonne after mid-cap mining group Vedanta Resources said the final shipment from its Lisheen mine in Ireland had been made last week. The County Tipperary mine’s closure, announced in April, will further tighten supply of the metal. Shares in the FTSE 250 group slipped 2.1pc to 208.3p.

Elsewhere, Glencore bucked the trend - up 2.9pc to 80.9p - while Anglo American closed flat at 226.6p.

Ahead of findings from the Serious Fraud Office this week, Tesco lost ground - down 4.9p, or 3pc, to 155.7p. In a cautious note, Cantor Fitzgerald maintained its stock recommendation as “under review” as it believes the investigation into accounting irregularities by the SFO, which began in October 2014, could place “significant limitations on Tesco’s ability to recover margin”. Britain’s biggest supermarket could be fined 1pc or more of its UK grocery sales, the broker warned.

B&Q owner Kingfisher became the biggest FTSE faller - 21.1p, or 6.1pc, lower at 323.9p - after management announced the detail behind its “One Kingfisher” strategic plan, which targets a £500m profit uplift in five years. However, Kate Calvert, of Investec, warned there is no guarantee that “the profits will come through”.

B&Q owner Kingfisher lifts by trend for home and garden DIY

A ratings reshuffle across European capital goods stocks by Credit Suisse also weighed on the index. IMI became the biggest laggard on the FTSE 250 after the investment bank downgraded its rating to “underperform”, while GKN’s rating was slashed to “neutral”. Shares in IMI dipped 5.7pc to 765p, while GKN weakened 2.7pc to 285p.

On Aim, engineer TP Group leapt 29.4pc to 2.8p on a robust trading update. The group is expected to break even this year, as the large scale heat exchangers market experienced reduced activity in the second half of the year. It also closed the year with a cash balance of £7m, which is ahead of market expectations.

Cambridge-based Abcam was among the top risers on Aim - up 6.8pc to 642.5p - on the back of its half-year trading update. The group, which supplies protein research tools to life scientists, is expecting revenue growth of around 16pc for its products business in the first half of the year - well ahead of forecasts of 11.5pc.

That's all from me for today. I'll be back again tomorrow morning - thanks for your comments.

'Mundane' Monday recap

It was another unpredictable trading session when Asian stocks recorded gains of around 1pc following a rally in oil prices - which saw Brent crude touch $32.81 a-barrel.

However, the rally in oil was short lived as it plunged by 5pc to $30.57 in the afternoon due to renewed concerns about oversupply, after Iraq announced record-high oil production.

Stock markets in Europe and the US faltered as a result, with the CAC in Paris closing down 0.6pc, while the German DAX lost 0.3pc. In London, the FTSE 100 closed 0.4pc lower.

Currently, in the US, the Dow Jones industrial average is off by 0.5pc.

Joshua Mahony, of IG, said: "The week has started with somewhat of a whimper, as the bearish sentiment that has permeated throughout European and US stock markets in 2016 tempers the bullish momentum built up from last week’s ECB meeting."

Mining sector: Time to call the bottom? 'Oh no it isn't'

Stock markets kicked of the week "a little softer", said David McCreadie, of Panmure Gordon,

"Led by crude which is drawing breath after a large percentage move last week the mining sector is being pulled between some analysts saying, ‘the bottom is in,’ and S&P who are rumoured to be preparing a report saying, ‘oh no it isn’t.’

"The view from this part of the gallery is that no one on the planet knows for sure when that low will be established but the pathway I laid out in my weekend report for crude, (upside to $34 resistance then move to new low around support at $25), holds good for the rest of the commodity complex.

"That is, crude usually leads the way and we can’t be confident that commodities have bottomed until crude has and that would require a sustained move above $40 to confirm. "

Russian economy in turmoil as Putin is battered by falling oil price and sanctions

The Russian economy is expected to remain in recession for a second straight year.

Economics correspondent Peter Spence writes:

Russia’s economy contracted at the fastest pace in six years in 2015, as plunging oil prices and sanctions over aggression in Ukraine took their toll.

The country’s GDP dropped by 3.7pc last year, according to state-run statistics agency Rosstat, after the Russian economy eked out growth of just 0.7pc in 2014. Analysts had expected a fall of 3.8pc.

Vladimir Putin, Russia’s president, last month claimed that the economic crisis had peaked. However, analysts said that the embattled country was nonetheless likely to remain in recession. William Jackson, of Capital Economics, said that “the economy is still extremely weak”.

Shares in Petra Diamonds fall on half-year results

Shares in Petra Diamonds slipped 0.7pc to 71p today after its half-year results revealed revenue slipped 28pc to $154m - down from $214m in the preivous year.

Jon Yeomans writes:

The falling price of diamonds has dragged down sales at Petra Diamonds, just as the company begins ramping up spending on a huge new mine in South Africa.

The London-listed diamond producer sold 7pc fewer diamonds in the first half of its financial (which starts at the beginning of July), as falling demand pushed prices down by 9pc. The company is pinning its hopes on a busier second half of the year, when it will hold four sales tenders as opposed to two in the first half.

Is the storm over?

It's two early to ask such a question, David Kelly, of JP Morgan Asset Management said.

"A better one is that for long-term investors, it’s the wrong question. The right question is: Starting with today’s fundamental backdrop and today’s prices how are financial assets likely to fare over the next few years?"

This depends on China, oil, growth and earnings.

"At just over $30 a barrel, oil is now priced below the long-term average cost of production for many deep-water projects and much of the ever-more-efficient U.S. shale industry. However, global oil inventories remain overwhelming, suggesting a still very slow recovery in prices.

"Crucially, however, the evidence continues to suggest that low oil prices are due to excessive supply rather than insufficient demand and thus should be regarded as a tax cut for global consumers rather than a harbinger of economic weakness."

Markets at midday

'Mundane Monday' as European markets 'stuck on dreary autopilot'

Monday’s mundane trading continued this morning, as European bourses failed to match the Asian session-inspired highs seen before the bell, said Connor Campbell, of SpreadEx.

"The Eurozone was the sole source of data-intrigue this morning; not that it helped matters, the German Ifo business climate figure, falling to 107.3 from 108.6 last month (the worst figure since the Grexit-plagued landscape of last June), only cementing the bearish tone of this morning’s trading."

Saudi stocks slip

Fears over global trade declines pointing to recession are 'misplaced'

Fears that declining global trade points to economic stagnation are misplaced, said Paul Jackson, of Source,

In the group's latest 'Uncommon Truths' research paper, it said while world exports have been shrinking by around 12pc year-on-year since late 2014 in US dollar terms, when distortions created by currency valuations are taken into account then the picture is very different.

For example, if exports are measured in euros rather than in dollars then world exports appear to be growing rather than shrinking. Over the year to August 2015, world exports were down 12pc in US dollar terms but were up 5pc in euro terms. China's December 2015 trade data showed exports were up 2.3pc on the previous year when reported in CNY but were down 1.4pc when reported in USD

“If I were to switch to a more bearish viewpoint, it would be based on the premise of a decelerating global economy. Global trade data may be a big concern but only if we look at it in nominal terms and, even then, only if we look at it in USD or currencies linked to it.”

Stock markets take a 'breather'

Equity markets in Europe came off their recovery highs this morning and are "understandably taking a breather" after the strong gains of late last week, Mike van Dulken, of Accendo Markets said.

"Sentiment nonetheless buoyed by an oil price oil off its 12 year supply-glut fuelled lows and thoughts that, perhaps, all that doom and gloom of late has been overcooked.

"Add to this fresh faith in major central banks saying/doing what is necessary to keep the ball in the air and risk appetite remains improved into the new week, hopefully reversing the rough start to 2016."

Shares in Kingfisher slump on five-year plan

Shares in Kingfisher, owner of DIY chain B&Q, were changing hands at 335.2p - down 2.8pc (the second biggest faller on the FTSE 100) - after it unveiled its strategic plan that will knock profits over the next two years.

The group said it plans to increase its sustainable annual profit by £500m in five years.

However, its plans are set to hurt profit by around £50m in the first year and double that in the second year.

Greek shares outperform on S&P upgrade

Greece's benchmark ATG equity index bucked the trend across European markets this morning. It climbed 1.2pc in early trade on the back of a rating upgrade from Standard & Poor's.

Late on Friday, the rating agency hiked Greece's rating to "B minus" from "CCC plus" as it believes the country is broadly in compliance with the terms of its €86bn financial support programme. It also said the Greek economy proved to be more resilient than markets had expected.

Last year, Greek shares lost around 30pc on the back of concerns about the country's debt problems.

Markets start the week 'tentatively'

"The correlation between oil and equities remains a key driver for markets as investors expect lower oil prices to force sovereign wealth funds to divest rather than invest.

"After Draghi's comments provided the momentum for a spectacular turnaround in markets last week, attention remains firmly on central banks with the Bank of Japan and Federal Reserve meetings this week taking on extra significance as investors wait to see how global central banks will support markets through the current volatility."

Oil price hits $32 mark - but rally short lived

The price of a barrel of brent crude hit an intraday high of $32.81 in early morning trade, buoyed by the cold weather in the US.

However, it soon gave up its gains after Saudi Arabian Oil Co, the world's biggest crude exporter, said it's keeping up investments in energy projects.

The group's chairman Khalid Al-Falih said this morning that it hasn't reduced its investment capacity despite the oil price volatility and that it was building a marine cluster in eastern Saudi Arabia.

Oil's best two-day rally in seven years was short lived, as it slumped by as much as 3.6pc as a result down to $31.03.